UK CPI hits 3% Again
The chances of a follow-up rate cut from the BOE next month have fallen sharply this week in response to the latest UK data. Yesterday, wage growth was seen rising to 6% from 5.5% prior, in the three months to December, its highest level since April. This reading was a red flag ahead of today’s UK CPI release which ultimately came in above forecasts too. Annualised headline CPI was seen rising to 3% last month, up from 2.5% prior and above the 2.8% the market was looking for. Interestingly, the introduction of VAT charges on private school fees was a major driver of the increase in consumer prices.
How Far Can Inflation Go?
With inflation now back at its highest level since March, the case for any further BOE easing next month has evaporated. The big question now is how much further the current inflationary uptick has to go? Notably, services inflation (which is the component often cited by the BOE) was lower-than-forecast, offering some hope that the increase last month will prove transitory. Still, against a backdrop of higher inflation and higher wages, near-term BOE easing prospects have fallen sharply and GBP is likely to remain supported as a result.
BOE: Inflation to Peak in September
At its last meeting, however, the BOE did warn that it expects inflation to trend higher before peaking into September this year. As such, GBP has room to recover in coming months before the BOE looks to ease again later in the year. Over the remainder of the week, traders will be watching the latest UK PMI readings due on Friday.
Technical Views
GBPUSD
For now, GBPUSD remains below the 1.2685 level and the broken bull trend line. This is a key pivot for the market with bulls needing to see a break here to encourage fresh topside momentum for a test of 1.3017 next. While current resistance holds, this move is still corrective with risks of a fresh downturn seen. 1.2482 and 1.2337 are key local supports to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.